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Bernanke Calms the Waters, Low Rate Pledge Is a Present: Don Hays

In late May, Fed Chairman Ben Bernanke triggered a month-long sell-off in stocks and bonds when he told Congress that substantial improvement in the economy could see a scaling back of the central bank's bond-buying program within the next few months.

Today, exactly 50 days later, the magical monetary maven has managed to find exactly the right tone and message to soothe and inspire investors all over the world: "Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy."

"I think Bernanke is outstanding. You hear all these cross-currents, the bond market is doing something and people start making misrepresentations, and he just comes and calms the waters," says Don Hays chairman of Hays Advisory Group in the attached video. "From the get-go, he's told it the way it is — and I think you can really trust Bernanke."

Maybe so. But it would be hard to argue that he said anything really different and that the only thing that changed was the market's interpretation of his oft-reiterated reminder that Fed policy is data dependent.

To be sure, Bernanke (or whoever replaces him) will have to walk a tight line in transitioning market psyche to one that believes as much in the economy as it does in the Fed.

For Hays, the past seven weeks are a good example of a bond market that is frequently wrong, overreacting once again on little more than speculation.

And other Fed watchers would seem to concur, including Miller Tabak's Andrew Wilkinson, who writes to clients today: "Bernanke's comments have sparked a stock and bond market riot overnight. But if Bernanke continues to think outside the box in his stimulus efforts, we see no reason why he might not INCREASE the pace of bond purchases before year end."

So much for getting a jump on the taper trade!

Furthermore, for those worried about the impact of rising rates on housing, Hays says it's clear that Bernanke does not want to "throw cold water on something that is just not getting started." As such, he thinks people far away from markets and Wall Street will also embrace the Bernanke gift. "[Bernanke's latest commentary] makes it more likely that people will view these low rates that he's giving them as a present to inspire them to start doing some business."

Of course, all of this only raises the stakes for when the inevitable tightening actually happens — not to mention what life will be like without the bearded professor to calm the waters.

"We worry every day," Hays says. "What we're talking about in the market is that we do not want something that is opposite of Ben Bernanke. We think he is one of the best fed chairman that has ever been." He adds that the next chief needs to be someone who is very good on policy and very good at not rocking the boat.